United States Court of Appeals, District of Columbia Circuit
D.C. Healthcare Systems, Inc., Appellant
District of Columbia, a municipal corporation, et al., Appellees
November 16, 2018
from the United States District Court for the District of
Columbia (No. 1:16-cv-01644)
P. Marx argued the cause for appellant. With him on the
briefs were Mark A. Grannis and Steven A. Fredley.
L. Lebsack, Assistant Attorney General, Office of the
Attorney General for the District of Columbia, argued the
cause for appellees District of Columbia, et al. With her on
the brief were Karl A. Racine, Attorney General, Loren L.
AliKhan, Solicitor General, and Stacy L. Anderson, Acting
Deputy Solicitor General.
Metcoff Klaus and Anna B. Laakmann were on the brief for
appellees Amerihealth Caritas District of Columbia, Inc. and
Amerihealth Caritas Health Plan.
Clifford M. Sloan was on the brief for appellee Mercer, LLC.
Before: Garland, Chief Judge, and Griffith and Pillard,
GARLAND CHIEF JUDGE
Chartered Health Plan was a health insurer that contracted
with the District of Columbia to provide healthcare services
for the District's low-income residents. In 2012, the
D.C. Department of Insurance, Securities, and Banking found
that Chartered was in financial distress and placed the
company into rehabilitation, a statutorily prescribed
receivership process in which the District's Insurance
Commissioner is given broad authority, as the Rehabilitator,
to take any action "deemed necessary or appropriate to
reform and revitalize the insurer." D.C. Code §
31-1312(c). The Superior Court of the District of Columbia
oversees the Rehabilitator and may approve a reorganization
plan the Rehabilitator proposes as long as the plan is
"fair and equitable to all parties concerned."
Id. § 31-1312(e). Here, as part of the
rehabilitation proceedings, the Superior Court approved the
Rehabilitator's proposal to reorganize Chartered, to sell
its assets to another health insurer, and to settle all of
its claims against the District of Columbia and its current
and former officials.
D.C. Healthcare Systems, Inc., the sole shareholder of
Chartered, actively participated in the rehabilitation,
although it was not a formal party to the proceedings. After
the Superior Court approved the reorganization plans,
Healthcare Systems filed this federal lawsuit against the
District and multiple other defendants, including the
Rehabilitator, alleging that the defendants' unlawful and
unconstitutional actions manufactured Chartered's
financial distress and forced it into the rehabilitation
district court dismissed Healthcare Systems' suit for
lack of subject-matter jurisdiction. The ground the court
cited for dismissal was the Rooker-Feldman doctrine,
which bars "state-court losers" from seeking
federal "district court review and rejection" of
state-court judgments. Exxon Mobil Corp. v. Saudi Basic
Indus. Corp., 544 U.S. 280, 284 (2005). We reverse
because Rooker-Feldman is inapplicable to this case.
District of Columbia provides healthcare coverage for
eligible low-income adults, uninsured children, and residents
with disabilities through privately owned insurance companies
that serve as managed care organizations. Chartered was one
such organization that operated pursuant to a contract
administered by the D.C. Department of Health Care Finance.
Under that contract, from 1987 to 2013, Chartered paid for
healthcare services for more than 100, 000 District
residents. Those residents were enrolled in the federal
Medicaid program or the D.C. HealthCare Alliance, a locally
funded program that provides medical coverage for uninsured
District residents who do not qualify for Medicaid. In
return, Chartered was reimbursed at a per-member, per-month
rate -- known as a "capitation rate." By law, the
capitation rate must be set at "actuarially sound"
levels, Am. Compl. ¶ 2, and must cover "(i) 100% of
what Chartered was expected to pay providers plus (ii) a
small percentage more . . . to cover Chartered's
administrative costs, a premium tax assessment, and a small
amount for profit," id. ¶ 34. See
42 C.F.R. §§ 438.4(a), 438.5(b) (defining
"actuarially sound capitation rates" and
establishing rate development standards). According to
Healthcare Systems, the District began substantially
underpaying Chartered in 2008. Am. Compl. ¶ 3.
the 2010 enactment of the federal Affordable Care Act, which
changed the eligibility standards for Medicaid, the District
transferred approximately 23, 000 residents from the Alliance
program to Medicaid. Id. ¶ 36. Healthcare
Systems alleges that, because Medicaid beneficiaries are
entitled to certain prescription-drug and other benefits not
covered by Alliance, this transfer caused Chartered's
costs to skyrocket. Id. ¶¶ 36-37. Despite
Chartered's repeated requests that the District increase
capitation rates to keep up with the rising cost of care, the
District allegedly refused to adjust the rates. Id.
D.C. Insurers Rehabilitation and Liquidation Act requires
health insurers like Chartered to maintain certain capital
levels. See D.C. Code § 31-3451.01. A
"Mandatory Control Level Event" takes place when a
health insurer's total adjusted capital is less than the
required minimum. See id. § 31-3451.01(12).
When such an event takes place, the Insurance Commissioner is
statutorily required to "take such action as is
necessary to place the health organization under regulatory
control under . . . Chapter 13 of this title."
Id. § 31.3451.06(a).
Chapter 13, the Commissioner may petition the D.C. Superior
Court for an order authorizing him or her to rehabilitate an
insurer that "is in such a condition that the further
transaction of business would be hazardous financially to its
policyholders, creditors, or the public." Id.
§ 31-1310(1). A rehabilitation order appoints the
Insurance Commissioner as the Rehabilitator and directs him
or her "to take possession of the assets of the insurer,
and to administer them under the general supervision of the
court." Id. § 31-1311(a). "If the
rehabilitator determines that reorganization, consolidation,
conversion, reinsurance, merger, or other transformation of
the insurer is appropriate, the rehabilitator shall prepare a
plan to effect the changes." Id. §
31-1312(e). The Superior Court may approve the
Rehabilitator's proposed plan as long as it is "fair
and equitable to all parties concerned." Id.
April 2012, then-Insurance Commissioner William White
informed Chartered's president that its 2011 financial
statement reflected a level of "risk-based capital"
that was "significantly below" the minimum required
under D.C. law. Am. Compl. ¶ 47. White then retained
Daniel Watkins as a consultant to conduct a financial review
of Chartered. In October 2012, White, Watkins, and Department
of Health Care Finance Director Wayne Turnage began working
to obtain consent from Chartered's board of directors and
its sole shareholder --appellant Healthcare Systems -- to
place Chartered into rehabilitation proceedings. On October
18, Healthcare Systems gave its written consent.
next day, Commissioner White filed an emergency consent
petition in the Superior Court, seeking to place Chartered
into rehabilitation. A Superior Court judge issued an
Emergency Consent Order of Rehabilitation, which appointed
White as Rehabilitator. White then appointed Watkins as
Special Deputy Rehabilitator.
February 2013, Watkins asked the Superior Court to approve a
proposed Plan of Reorganization for Chartered, as well as a
proposed Asset Purchase Agreement, under which
Chartered's assets would be sold to AmeriHealth, another
managed care organization operating in the ...